3 stocks to sell before the next meltdown

Even with the market surging higher, it's time to take profits in these big names.

By StreetAuthority Nov 19, 2013 5:02PM
Burning money © Lumina Imaging, Digital Vision, Getty ImagesBy Jim Woods

The major indices keep hitting new all-time highs, and as a trader, that makes life pretty easy. Basically, you have a bullish tailwind at your back that can forgive your loser picks, while at the same time helping your winners move up nicely.

Indeed, in this era of quantitative easing, which is likely to continue based on the Senate testimony last week of Federal Reserve chair nominee Janet Yellen, I think it makes more sense than ever to buy the "air pockets" in this market.

Yet there are some stocks that are just a bit too risky here and probably should be sent packing from your portfolio.

I alerted readers to one such stock earlier this month when I said tech giant Cisco Systems (CSCO) was likely on the downslope. On Thursday, the stock vindicated my call, as it plunged as much as 13.5% after a dreadful earnings report that missed expectations and a warning that next quarter's revenue would drop 8% to 10% from the same period last year.

In addition to Cisco, there are some other stocks that have performed very well of late that I suspect could be sell-off targets as we head toward the end of the year.

This selling pressure is likely to come from what I've called the "performance protection trade," meaning that hedge funds and professional traders would sell them to beef up their 2013 returns. Other factors could include a rotation out of a hot sector, or possibly a faulty earnings report from a sector bellwether that taints a particular group.

Here are three stocks that I think investors should sell before any potential meltdown:

1. Kohl's (KSS)
Like Cisco, Kohl's' shares sank big on Thursday, declining as much as 9% after releasing a very disappointing third-quarter earnings report. The retailer said profits in the quarter fell 11% on a combination of weak same-store sales and falling profit margins.

Even with the sell-off on Thursday, KSS has been a big winner. So far this year, the stock has delivered a total return of nearly 30%. Yet with falling third-quarter metrics, as well as the company's forecast for the current quarter that calls for a decline in sales of 2% to 4%, this 2013 winner needs to be taken out of your portfolio right now before any further meltdown takes place.

2. Lockheed Martin (LMT)
The defense contractor just said it will be shedding some 4,000 jobs, or 3% of its global workforce, over the next 18 months. The chief reason cited for the cuts was the decline in U.S. defense spending. The company said it plans to shut down four U.S. production facilities and restructure a number of plants to adjust for the changing circumstances.
While adjusting to changes in defense spending is something Lockheed Martin is used to doing, the bigger picture here is that the trend toward lower defense expenditures worldwide is likely to continue, and that could cause LMT shares to stall. Given the year-to-date return of nearly 55% in the stock, I don't see a whole lot more upside going forward.

3. Facebook (FB)
The social networking site has had a very good 2013, with its shares soaring more than 80% year to date. The company (and its stock) has left its 2012 botched rollout behind, and this year, traders have made FB a great momentum play. Unfortunately, that run might be setting traders up for a meltdown. One investor taking the opportunity to lighten up on his FB shares is tech pioneer Marc Andreessen.

According to SEC filings, his venture capital firm Andreessen Horowitz sold 2.28 million FB shares on Nov. 6, at roughly $50 a share. That's about a third of the investment firm's holdings, so he isn't out of the stock completely. However, the move to lighten up on FB may show performance protection thesis at work.

Fundamentally speaking, FB now is worried about the potential for ad saturation in its service. Facebook's chief financial officer suggested as much during the company's third-quarter earnings call, specifically saying that there might be a limit on how many ads Facebook can serve users before it limits engagement. Given the CFO's concerns, the sale from at least one big tech investor, and the elevated run in FB shares this year, I think now is the time to sell before any potential meltdown.

This article was originally published on StreetAuthority's sister site, ProfitableTrading. 

More from ProfitableTrading

21Comments
Nov 19, 2013 10:41PM
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Meltdown coming?  Say it ain't so!!!

 

Benny was SUPPOSED TO PREVENT THIS.

 

See, everybody?  WE HAVE BEEN LIED TO.

Nov 19, 2013 8:24PM
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Isn't the real story here the assurances in article after article that there WILL be a meltdown? Why then would you remain in ANY stock? It isn't socially correct to go bust... Twits.
Nov 20, 2013 8:20AM
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The fundamentals are lacking in this market and the dollar is little more than **** tickets. The crash is coming, keep your powder dry!
Nov 20, 2013 12:21AM
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do you warranty this advice,  or are you just selling your personal opinion to the gullable public????????????????????????
Nov 19, 2013 11:28PM
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Nobody knows if the market will "melt down". That's the real story here.
Nov 20, 2013 12:04AM
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I AGREE WITH ALL THE WORLDS A STOOGE. NOT ONE PERSON CAN PREDICT A MELTDOWN. DUH. GOOD LUCK AT INVESTING. I MYSELF HAVE 4 SEPARATE ROTH ACCTS. NOW THAT I AM RETIRED I CAN TAP PROFIT FROM THEM WITH NO WORRIES OF BEING PENALIZED. IT HAS WORKED OUT WELL SO FAR AND NOW I HOPE ALL OF YOU CAN SAFELY SAY THE SAME. CORAVETTE.
Nov 20, 2013 11:44PM
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The Feds'


The Federal Reserve is banking on Christmas to bail them out.

If the Grinch steals Christmas ... Watch out Wall Street...

Nov 20, 2013 7:59AM
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Where is DARTH VADER , aka Anthony , it must be time for him to show up predicting the end ?


Or has he gone into grief counseling ?
Nov 20, 2013 6:10PM
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Obamacare will really sink this country.

 

Nov 20, 2013 8:38AM
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The reality is that the market self corrects if needed.

At present there is no need for correction. Stocks are overall either at or under value.

We should see a continuation of growth at 16k plus in the year ahead. Just good value.

Nov 19, 2013 9:37PM
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I agree on facebook death but not on Kohl's and Martin. All martin need to do is add specialized small efficient private jet production and increase on satellite technology.
I would consider adding Tweeter, followed by google as looser. MS is also a dying beast so is IBM. Unless diversified Apple is also sinking. The biggest looser from Technology are telephone companies as technology will allow world wide customers to signup in any part of the world to get cheap cell phone service. It means India, China and Russia, Germany will be big players in providing very cheap cell phone and IT service in the near feature. Get ready for boat to rock and roll. Soon an OS that can not be attacked by virus will be introduced killing 100K plus jobs around the world. But new nano technology based housing construction will rise.
Nov 19, 2013 8:02PM
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Lockheed is just another victim of the Obama Administration......a set course to destroy this Country.
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